Inventory Management Flashcards
(43 cards)
What is the role of the operations department?
The role of the operations department is to provide the products that the organisation offers
What is the Role of the secondary sector organisation?
Secondary sector organisations will be concerned with actually producing goods from raw materials
What is the role of tertiary sector organisations?
Tertiary sector will be concerned with the purchasing and stocking of goods or the systems that are in place to provide services to customers
What is inventory management?
Inventory management is concerned with the sourcing and storage of raw materials (for secondary sector businesses) or supplies of finished goods for resale (for tertiary sector businesses)
What is the logistical management of inventory?
Logistical management of inventory refers to the process of dealing with an entire order from start to finish
What do logistics managers do?
Logistics managers will be responsible for the following processes:
- inventory
- storage and warehousing
- order processing
- distribution
Inventory
-liaising with suppliers that provide materials for production, partly or completely finished goods (known as the supply chain)
Storage and warehousing
-ensuring the appropriate storage of inventory including sending inventory to production departments if required.
Order processing
-dealing with orders from customers to ensure they receive the correct products
Distribution
Deciding on the best method of distribution to get the product to the customer
What can distribution methods include of:
- road/rail/air/sea etc
- utilities infrastructure
- satellite/cable/mobile networks
What must logistics managers also be aware of?
Logistics managers must also be aware of external factors that can affect methods of distribution such as rising fuel costs and environmental pressures such as attempting to reduce their carbon footprint by being more fuel-efficient
What happens when a supplier is chosen?
Once a supplier is chosen, the business must then consider the quantity of inventory to be ordered
What must a business not do?
A business must not overstock or understock as both have negative consequences
What are the consequences of overstocking?
- supplies could go out of date if they are stored for too long
- supplies could go out of fashion before they are used
- too many supplies leaves a risk of theft by staff, customers or thieves
- the business will have to pay for stockholding costs, such as insurance and security
- the opportunity cost of money being tied up in inventory which could be better used elsewhere in the business
What are the consequences of understocking?
- the business may run out of inventory and be unable to continue production or carry on selling
- the business will not benefit from bulk buying discounts due to making smaller orders
- there may be no goods to sell, resulting in a bad reputation and customers not returning
- there will be an increase in delivery costs since many smaller deliveries will have to be made
- there will be an increse in administration costs eg paying staff to browse for supplies, complete order forms, settle invoices, etc
Features of an inventory management system
- maximum/economic inventory level
- minimum inventory level
- re-order level
- re-order quantity
- lead time
- buffer inventory
Maximum/economic inventory level
This is the most amount of inventory that should be held- setting this level avoids consequences of overstocking
Minimum inventory level
This is the least amount of inventory that should be held- setting this level avoids consequences of understocking
Re-order level
The level at which inventory is re-ordered. Computerised inventory systems link to EPOS and automatically re-order goods. ❌❌EPOS?- this avoids running out of inventory
Re-order quantity
This is the amount that is ordered- this ensures the quantity ordered is not too much or too little
Lead time
This is the time taken between an order being placed and inventory arriving- as short a lead time as possible allows the business to react to rush orders
Buffer inventory
This is the extra inventory below the agreed minimum to be used in emergencies- this ensures that production doesn’t stop and sales continue to be made
Each business will have to set their own specific levels, depending on the following factors:
- maximum inventory level
- minimum inventory level
- reorder level